LIBRARY 


UNIVERSITY  OF  CALIFORNIA. 


Class 


SUGGESTED  PLAN 

FOR 

MONETARY 
LEGISLATION 

SUBMITTED  TO  THE  NATIONAL  MONETARY  COMMISSION 

BY 

HON.  NELSON  W.  ALDRICH 


REVISED  EDITION 


OCTOBER,  1911 


or 


WASHINGTON 

1911 


SUGGESTED  PLAN 

FOR 

MONETARY 
LEGISLATION 

SUBMITTED  TO  THE  NATIONAL  MONETARY  COMMISSION 

BY 

HON.  NELSON  W.  ALDRICH 


REVISED  EDITION 


OCTOBER,  1911 


WASHINGTON 

1911 


To  the  Members  of  the  National  Monetary  Commission: 

When  I  submitted  to  the  commission  in  January  last 
the  outline  of  a  plan  for  monetary  reform  based  upon  the 
formation  of  a  National  Reserve  Association,  I  was  not 
prepared  to  offer  definite  suggestions  with  reference  to 
several  important  phases  of  the  subject.  Among  the 
questions  then  left  for  further  examination  were: 

(1)  What  relation  should  State  banks  and  trust  com- 
panies sustain  to  the  Association? 

(2)  What  practical  method  could  be  devised  by  which 
the  2  per  cent,  bonds  of  the  United  States  held  by  national 
banks  could  be  purchased  and    held  by  the   National 
Reserve  Association  without  prejudice  to  the  best  inter- 
ests either  of  the  Government,  the  national  banks,  or  the 
Reserve  Association? 

(3)  What  means  could  be  adopted  to  insure  the  mainte- 
nance of  adequate  reserves  by  the  association  and  other- 
wise to  provide  such  effective  regulation  of  discounts  and 
note  issues  as  would  enable  the  organization  to  respond 
promptly  at  all  times  to  normal  or  unusual  demands  for 
credit  or  currency  without  danger  of  undue  expansion  or 
inflation  ? 

As  the  plan  was  originally  offered  at  your  request  to 
serve  as  a  basis  for  discussion  and  criticism  when  the 
constructive  work  of  the  commission  was  taken  up,  it 
seems  to  me  desirable  before  the  commencement  of  this 
work  that  the  plan  should  be  presented  in  as  complete  a 
form  as  possible.  I  therefore  respectfully  submit  here- 
with for  your  consideration  a  revision  which  contains 
suggestions  covering  the  points  to  which  I  have  referred. 

NELSON  W.  ALDRICH, 
Chairman  National  Monetary  Commission. 

WASHINGTON,  October  14,  1911. 


227456 


THE  NATIONAL  RESERVE  ASSOCIATION  OF  THE  UNITED 

STATES. 


CHARTER  CAPITAL  AND  LOCATION. 

1 .  It  is  proposed  to  charter  the  National  Reserve  Asso- 
ciation of  the  United  States,  which  shall  be  the  principal 
fiscal  agent  of  the  Government  of  the  United  States. 
The  authorized  capital  of  the  National  Reserve  Asso- 
ciation shall  be  20  per  cent  of  the  capital  of  the  banks 
eligible   for   membership    (approximately    300   millions). 
The  length  of  its  charter  shall  be  50  years.     The  head 
office  of  the  association  shall  be  in  Washington,  D.  C. 

MEMBERSHIP. 

2.  All  national  banks  and  all  State  banks  and  trust 
companies  which  comply  with  the  requirements  for  mem- 
bership hereinafter  set  forth  (sees.  60-64)  may  subscribe 
to  the  capital  stock  of  the  National  Reserve  Association. 
(The  word  "bank,  "  when  used  hereinafter,  shall  be  under- 
stood to  refer  to  all  such  national  banks,  State  banks,  and 
trust  companies  as  shall  comply  with  the  requirements  for 
membership  hereinafter  denned.)     A  bank  having  a  mini- 
mum capital  of  $25,000  may  subscribe  to  an  amount  of 
capital  stock  of  the  National  Reserve  Association  equal 
to  20  per  cent  of  the  stock  of  the  subscribing  bank,  and 
not  less,  and  each  of  such  subscribing  banks  shall  become 
a  member  of  a  local  association  as  hereinafter  provided. 
Fifty  per  cent  of  the  subscriptions  to  the  capital  stock  of 
the  National  Reserve  Association  shall  be  called  in  cash; 
the  balance  of  the  subscriptions  will  remain  a  liability  of 
the  subscribers,  subject  to  call. 

3.  Shares  of  the  capital  stock  of  the  National  Reserve 
Association  shall  not  be  transferable,  and  under  no  cir- 


National    Monetary     Commits  to 


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cumstances  may  they  be  owned  by  any  corporation  other 
than  the  subscribing  bank  nor  by  any  individual,  nor  may 
they  be  owned  by  any  bank  in  any  other  amount  than  in 
the  proportion  herein  provided.  In  case  a  subscribing 
bank  increases  its  capital,  it  shall  thereupon  subscribe  for 
an  additional  amount  of  the  capital  stock  of  the  National 
Reserve  Association  equal  to  20  per  cent  of  the  bank's 
increase  of  capital,  paying  therefor  its  then  book  value,  as 
shown  by  the  last  published  statement  of  the  Association. 
A  bank  applying  for  membership  in  the  Association  after 
its  formation  must  subscribe  for  a  proportional  share  of  its 
capital  stock,  paying  therefor  its  then  book  value.  In  case 
a  subscribing  bank  reduces  its  capital,  it  shall  surrender  a 
proportionate  amount  of  its  holdings  of  the  capital  stock 
of  the  National  Reserve  Association.  If  a  bank  goes  into 
liquidation,  it  shall  surrender  all  of  its  holdings  of  the 
capital  stock  of  the  National  Reserve  Association.  The 
shares  surrendered  shall  be  canceled  and  the  bank  shall 
receive  in  payment  therefor  a  sum  equal  to  their  book 
value. 

EARNINGS  AND  DIVIDENDS. 

4.  The  earnings  of  the  National  Reserve  Association 
shall  be  distributed  in  the  following  manner : 

After  the  payment  of  all  expenses  and  taxes  the  stock- 
holders shall  receive  4  per  cent.  Further  earnings  shall 
be  divided,  one-half  to  go  to  the  surplus  of  the  National 
Reserve  Association  until  that  surplus  shall  amount  to 
20  per  cent  of  the  paid-in  capital,  one-fourth  to  go  to  the 
Government  of  the  United  States,  and  one-fourth  to  the 
stockholders;  but  when  the  stockholders'  dividends  shall 
reach  5  per  cent  they  shall  receive  no  additional  distribu- 
tion. After  the  stockholders  receive  5  per  cent  the  earn- 
ings shall  be  divided,  one-half  to  be  added  to  the  surplus 
of  the  National  Reserve  Association  and  one-half  to  go 
to  the  Government.  After  the  stockholders  receive  5 


Suggested    Plan   for    Monetary    Legislation 

per  cent  per  annum  and  the  surplus  of  the  National 
Reserve  Association  amounts  to  20  per  cent  of  the  paid-in 
capital,  all  excess  earnings  shall  go  to  the  Government. 
The  minimum  dividends  to.  the  stockholders  shall  be 
cumulative. 

.ORGANIZATION. 

5.  All  subscribing  banks  shall  be  formed  into  associa- 
tions of  banks,   to  be  designated  as  local  associations. 
Every  local  association  shall  have  corporate  powers  and 
shall  be  composed  of  not  less  than  10  banks,  and  the 
combined  capital  and  surplus  of  the  members  of  each  local 
association  shall  aggregate  not  less  than  $5,000,000.     The 
territory  included  in  the  local  associations  shall  be  so 
apportioned  that  every  bank  will  be  located  within  the 
boundaries  of  some  local  association.     Every  subscribing 
bank  shall  become  a  member  of  the  local  association  of 
the  territory  in  which  it  is  situated. 

6.  All  of  the  local  associations  shall  be  grouped  into 
divisions,  to  be  called  districts. 

The  country  shall  be  divided  at  first  into  15  districts, 
and  a  branch  of  the  National  Reserve  Association  shall  be 
located  in  each  district,  the  location  to  be  determined  by 
the  directors  of  the  National  Reserve  Association.  The 
districts  may  be  readjusted  from  time  to  time,  and  new 
districts  and  new  branches  may  be  created  by  the  directors. 

7.  The  National  Reserve  Association  and  its  branches 
and  the  local  associations  shall  be  exempt  from  State  and 
local   taxation,    except   in   respect   to   taxes   upon   real 
estate. 

OFFICERS  AND  DIRECTORS. 

(A)   DIRECTORS  OF  LOCAL  ASSOCIATIONS. 

8.  Each  local  association  shall  elect  annually  a  board  of 
directors,  the  number  to  be  determined  by  the  by-laws  of 
the  local  associations.     Three-fifths  of  that  number  shall 
be  elected  by  ballot  cast  by  the  representatives  of  the 


National    Monetary     Commission 

banks  that  are  members  of  the  local  association,  each 
bank  having  one  representative  and  each  representative 
one  vote,  without  reference  to  the  size  of  the  bank.  Two- 
fifths  of  the  whole  number  of  directors  of  the  local  asso- 
ciation shall  be  elected  by  these  same  representatives  of 
the  several  banks  that  are  members  of  the  association, 
but  in  voting  for  these  additional  directors  each  repre- 
sentative shall  be  entitled  to  as  many  votes  as  the  bank 
which  he  represents  holds  shares  in  the  National  Reserve 
Association.  At  such  elections  there  shall  be  no  proxies. 
The  authorized  representatives  of  a  bank,  as  herein  pro- 
vided, must  be  either  the  president,  vice  president,  or 
cashier  of  the  bank  he  represents. 

(B)  DIRECTORS  OF  BRANCHES. 

9.  Each  of  the  branches  of  the  National  Reserve  Asso- 
ciation shall  have  a  board  of  directors,  to  be  elected  in 
the  following  manner: 

The  board  of  directors  of  each  local  association  shall 
elect  by  ballot  one  member  of  the  board  of  directors  of 
the  branch  of  the  National  Reserve  Association.  In  this 
manner  there  will  thus  be  elected  as  many  directors  of  the 
branch  of  the  National  Reserve  Association  as  there  may 
be  local  associations  in  the  district  in  which  that  branch 
of  the  National  Reserve  Association  is  located. 

10.  In  addition  to  that  number  there  shall  be  elected  in 
the  following  manner  a  number  of  directors  equal  to  two- 
thirds  of  the  number  of  local  associations  in  the  district 
where  the  branch  is  located.     There  shall  be  chosen  by 
the  banks  composing  each  local  association  a  voting  rep- 
resentative or  proxy  holder.     In  choosing  such  voting 
representative  each  bank  shall  be  entitled  to  as  many 
votes  as  it  holds  shares  in  the  National  Reserve  Associa- 
tion.    The  voting  representatives  of  the  several  local  as- 
sociations which  form  a  district  shall  elect  an  additional 
number  of  directors  of  the  branch  equal  to  two-thirds  of 


Suggested    Plan   for    Monetary    Legislation 

the  number  elected  directly  by  the  local  association;  that 
is,  equal  to  two-thirds  of  the  number  of  local  associations 
composing  the  district.  Each  voting  representative  at 
such  election  shall  have  a  number  of  votes  equal  to  the 
number  of  shares  in  the  National  Reserve  Association 
held  by  all  the  banks  composing  the  local  association 
which  he  represents. 

11.  The  board  of  the  branch  as  thus  constituted  shall  at 
once  add  to  its  numbers  by  the  election  of  an  additional 
number  of  directors  equal  to  one-third  the  number  of 
local  associations  situated  in  the  district.     Such  addi- 
tional directors  shall  fairly  represent  the  industrial,  com- 
mercial, agricultural,  and  other  interests  of  the  district, 
and  shall  not  be  officers  of  banks.      Directors  of  banks 
shall  not  be  considered  as  officers. 

12.  The  manager  of  the  branch  shall  be  ex  officio  a 
member  of  the  board  of  directors  of  the  branch  and  shall 
be  chairman  of  the  board. 

The  board  of  directors  of  a  branch  of  the  National  Reserve  Associa- 
tion will  thus  be  composed  of — 

First.  A  group  of  directors  equal  in  number  to  the  number  of  local 
associations  composing  the  district,  and  this  group  shall  be  elected  by 
the  local  associations,  each  association  having  one  vote. 

Second.  A  group  of  directors  equal  to  two-thirds  of  the  foregoing 
group  and  elected  by  stock  representation. 

Third.  A  group  of  directors  equal  in  number  to  one-third  of  the  first 
group,  representing  the  industrial,  commercial,  agricultural,  and  other 
interests  of  the  district,  and  elected  by  the  votes  of  the  first  two  groups, 
each  director  thus  voting  having  one  vote. 

Fourth.  The  manager  of  the  branch  shall  be  ex  officio  a  member  of 
the  board  of  directors  of  the  branch  and  shall  be  chairman  of  the  board. 

13.  All  the  members  of  the  board  of  directors  of  the 
branch,  except  the  ex  officio  member,  shall  at  the  first 
meeting  of  the  board  be  classified  into  three  classes,  and 
the  terms  of  office  of  these  three  classes  shall  be,  respec- 
tively, one,  two,  and  three  years.     Thereafter  members 
of  the  board  shall  be  elected  for  a  term  of  three  years. 


10709 — n- 


National    Monetary     Commissio 


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(C)  DIRECTORS  OF  THE  NATIONAL  RESERVE  ASSOCIATION. 

14.  The  board   of  the   National   Reserve  Association 
shall  at  first  consist  of  45  directors,  and  shall  be  consti- 
tuted in  the  following  manner: 

First.  Six  ex  officio  members,  namely,  the  governor  of 
the  National  Reserve  Association,  who  shall  be  chairman 
of  the  board;  two  deputy  governors  of  the  National 
Reserve  Association,  the  Secretary  of  the  Treasury,  the 
Secretary  of  Commerce  and  Labor,  and  the  Comptroller 
of  the  Currency. 

15.  Second.  Fifteen  directors  to  be  elected,  one  by  the 
board  of  directors  of  each  branch  of  the  National  Reserve 
Association.     In  case  the  number  of  districts  shall  be 
increased    hereafter,    each    additional    district    shall    be 
entitled  to  elect  an  additional  director. 

1 6.  Third.  Twelve  directors,  who  shall  be  elected  by 
voting  representatives  of  the  various  districts,  each  of 
whom  shall  cast  a  number  of  votes  equal  to  the  number 
of  shares  in  the  National  Reserve  Association  held  by  all 
the  banks  in  the  district  which  he  represents. 

17.  Fourth.  The  twenty-seven  directors  thus  elected 
shall  in  turn  elect  twelve  additional  members,  who  shall 
fairly  represent  the  industrial,  commercial,  agricultural, 
and  other  interests  of  the  country,  and  who  shall  not  be 
officers  of  banks.     Directors  of  banks  shall  not  be  con- 
sidered as  officers. 

1 8.  Not  more  than  three  of  the  directors  elected  under 
paragraphs  16  and  17  shall  be  chosen  from  one  district. 

19.  At  the  first  meeting  of  the  board  all  the  members 
of  the  board,  except  the  ex  officio  members,  shall  be 
classified  into  three  classes,  and  the  terms  of  office  of 
these  three  classes  shall  be,  respectively,  one,  two,  and 
three  years.     Thereafter  members  of  the  board  shall  be 
elected  for  a  term  of  three  years. 


10 


Suggested    Plan   for    Monetary    Legislation 

20.  No  member  of  any  national  or  State  legislative 
body  shall  be  a  director  of  the  National  Reserve  Associa- 
tion, nor  of  any  of  the  branches,  nor  of  any  local  associa- 
tion. 

(D)  COMMITTEES  OF  THE  NATIONAL  RESERVE  ASSOCIATION. 

21.  The  directors  of  the  National  Reserve  Association 
shall  annually  elect  from  their  number  an  executive  com- 
mittee and  such  other  committees  as  the  by-laws  of  the 
National  Reserve  Association  may  provide.     The  execu- 
tive committee  shall  consist  of  nine  members,  of  which 
the  governor  of  the  National  Reserve  Association  shall  be 
ex  officio  chairman  and  the  two  deputies  and  the  Comp- 
troller of  the  Currency  ex  officio  members,  but  not  more 
than  one  of  the  elected  members  shall  be  chosen  from  one 
district. 

2  2 .  The  executive  committee  shall  have  all  the  authority 
which  is  vested  in  the  board  of  directors,  except  such  as 
may  be  specifically  delegated  by  the  board  to  other  com- 
mittees or  to  the  executive  officers,  or  such  as  may  be 
specifically  reserved  or  retained  by  the  board. 

23.  There  shall  be  a  board  of  supervision  elected  by  the 
board  of  directors  from  among  its  number,  of  which  the 
Secretary  of  the  Treasury  shall  be  ex  officio  chairman. 

(E)  EXECUTIVE  OFFICERS  OF  THE  NATIONAL  RESERVE  ASSOCIATION. 

24.  The  executive  officers  of  the  National  Reserve  As- 
sociation shall  consist  of  a  governor,  two  deputy  governors, 
a  secretary,  and  such  subordinate  officers  as  may  be  pro- 
vided by  the  by-laws.     The  governor  shall  be  selected  by 
the  President  of  the  United  States  from  a  list  submitted 
by  the  board  of  directors,  and  shall  be  subject  to  removal 
by  a  two-thirds  vote  of  the  board  of  directors  for  cause. 
The  term  of  office  of  the  deputies  shall  be  seven  years, 
but  the  two  deputies  first  elected  shall  serve  for  terms  of 
four  years  and  seven  years,  respectively.     The  deputies 


National    M on  et ary     Commission 

shall  be  elected  by  the  board  of  directors  and  may  be 
removed  for  cause  at  any  time  and  their  places  filled  by 
the  board.  In  the  absence  of  the  governor  or  his  inability 
to  act,  the  deputy  who  is  senior  in  point  of  service  shall 
act  as  governor. 

(F)  EXECUTIVE  OFFICERS  OF  BRANCHES. 

25.  Each  branch  shall  have  a  manager  and  a  deputy 
manager  appointed  by  the  governor  of  the  National  Re- 
serve Association,   with  the  approval  of  the  executive 
committee. 

26.  The  powers  and  duties  of  the  manager  and  deputy 
manager  and  of  the  various  committees  of  the  branches 
shall  be  prescribed  by  the  by-laws  of  the  National  Re- 
serve Association. 

(G)  EXECUTIVE  OFFICERS  OF  THE  LOCAL  ASSOCIATIONS. 

27.  The  directors  of  the  local  association  shall  annually 
elect  from  among  their  number  a  president,  a  vice  presi- 
dent, and  an  executive  committee,  whose  powers  and 
duties  and  terms  of  office  shall  be  determined  by  the 
by-laws  of  the  local  association,  subject,  however,  to  the 
provisions  of  this  Act. 

28.  The    local    associations,    the    branches,    and    the 
National   Reserve  Association  shall  each  have  by-laws 
which  shall  provide,  among  other  things,  a  method  of 
filling  vacancies  on  their  respective  boards  of  directors. 

The  by-laws  of  the  local  associations  and  of  the  branches 
shall  be  subject  to  the  approval  of  the  National  Reserve 
Association. 

[The  Act  will  provide  a  preliminary  organization  for  the 
Reserve  Association,  to  remain  in  effect  until  the  perma- 
nent organization  created  by  the  foregoing  sections  can 
be  perfected.1 


12 


Suggested    Plan   for    Monetary    Legislation 

FUNCTIONS   OF  THE  LOCAL  ASSOCIATIONS. 

29.  Any  member  of  a  local  association  may  apply  to 
such  association  for  a  guaranty  of  the  commercial  paper 
which  it  desires  to  rediscount  at  the  branch  of  the  National 
Reserve  Association  in  its  district.     Any  such  bank  re- 
ceiving a  guaranty  from  a  local  association  shall  pay  a 
commission  to  the  local  association,  to  be  fixed  in  each 
case  by  its  board  of  directors.     The  guaranty  of  the  local 
association,  in  the  event  of  loss,  shall  be  met  by  the  mem- 
bers of  the  local  association  in  proportion  to  the  ratio 
which  their  capital  and  surplus  bears  to  the  aggregate 
capital  and  surplus  of  the  members  of  the  local  association, 
and  the  commission  received  for  such  guaranty,  after  the 
payment  of  expenses  and  possible  losses,  shall  be  dis- 
tributed among  the  several  banks  of  the  local  association 
in  the  same  proportion.     A  local  association  shall  have 
authority  to  require  security  from  any  bank  offering  paper 
for  guaranty,  or  it  may  decline  to  grant  the  application. 

30.  The  total  amount  of  guaranties  by  a  local  associa- 
tion to  the  National  Reserve  Association  shall  not  at  any 
time  exceed  the  aggregate  capital  and  surplus  of  the  banks 
forming  the  guaranteeing  association. 

31.  Any   local   association   may  by  a  vote   of  three- 
fourths  of  its  members  and  with  the  approval  of  the 
National  Reserve  Association,  assume  and  exercise  such 
of  the  powers  and  functions  of  a  clearing  house  as  are  not 
inconsistent  with  the  purposes  of  this  Act.     The  National 
Reserve  Association  may  require  any  local  association  to 
perform  such  services  in  facilitating  the  domestic  exchanges 
of  the  Reserve  Association  as  the  public  interests  may 
require. 

32.  The  local  associations  shall  appoint  examiners,  who 
shall  have  authority  to  examine  into  the  condition  of  the 
banks  composing  the  association  under  such  regulations 
as  may  be  adopted  by  the  local  association,  with  the  ap- 
proval of  the  National  Reserve  Association.     Copies  of  the 

13 


National    Monetary     Commission 

reports  of  these  examinations  shall  upon  request  be  fur- 
nished to  the  executive  officers  of  the  National  Reserve 
Association  and  of  its  branches. 

33.  A  local  association  may  by  a  vote  of  two-thirds  of 
its  members  suspend  a  bank  from  the  privileges  of  mem- 
bership for  a  failure  for  thirty  days  to  maintain  its  reserves, 
or  to  make  the  reports  required  by  this  Act,  or  for  mis- 
representation in  any  report  or  examination  as  to  its 
condition  or  as  to  the  character  or  extent  of  its  assets  or 
liabilities. 

FUNCTIONS  OF  THE  NATIONAL  RESERVE  ASSOCIATION. 

34.  All  of  the  privileges  and  advantages  of  the  National 
Reserve  Association  shall  be  equitably  extended  to  every 
bank  of  any  of  the  classes  herein  denned  which  shall  sub- 
scribe to  its  proportion  of  the  stock  of  the  National  Re- 
serve Association   and   shall  otherwise   conform   to   the 
requirements  of  this  Act. 

35.  The  Government  of  the  United  States  and  those 
banks  owning  stock  in  the  National  Reserve  Association 
shall  be  the  sole  depositors  in  the  National  Reserve  Asso- 
ciation.    All  domestic  transactions  of  the  National  Re- 
serve Association  shall  be  confined  to  the  Government 
and  the  subscribing  banks,  with  the  exception  of  the  pur- 
chase or  sale  of  Government  or  State  securities  or  securi- 
ties of  foreign  Governments  or  of  gold  coin  or  bullion. 

36.  The  Government  of  the  United  States  shall  deposit 
its  cash  balance  with  the  National  Reserve  Association, 
and  thereafter  all  receipts  of  the  Government  shall  be 
deposited  with  the  National  Reserve  Association,  except 
that   when    necessary    the    Government    may    designate 
national  banks  for  that  purpose  in  cities  where  there  is  no 
branch  of  the   National   Reserve  Association.     All  dis- 
bursements by  the  Government  shall  be  made  through 
the  National  Reserve  Association. 


Suggested    Plan   for    Monetary    Legislation 

37.  The   National   Reserve   Association   shall   pay   no 
interest  on  deposits. 

38.  The  National  Reserve  Association  may  rediscount 
for  and  with  the  indorsement  of   any  bank  having  a 
deposit  with  it,  notes  and  bills  of  exchange  arising  out  of 
commercial  transactions.     (This  language,  whenever  used, 
is  intended  to  apply  to  all  notes  and  bills  of  exchange 
issued  or  drawn  for  agricultural,  industrial,  or  commercial 
purposes,  and  not  for  carrying  stocks,  bonds,  or  other 
investment  securities.) 

Such  notes  and  bills  must  have  a  maturity  of  not  more 
than  28  days,  and  must  have  been  made  at  least  30  days 
prior  to  the  date  of  rediscount.  The  amount  so  redis- 
counted  shall  in  no  case  exceed  the  capital  of  the  bank 
applying  for  the  rediscount.  The  aggregate  of  such  notes 
and  bills  bearing  the  signature  or  indorsement  of  any  one 
person,  company,  corporation,  or  firm,  rediscounted  for 
any  one  bank,  shall  at  no  time  exceed  10  per  cent  of  the 
capital  and  surplus  of  said  bank. 

39.  The  National  Reserve  Association  may  also  redis- 
count, for  and  with  the  indorsement  of  any  bank  having  a 
deposit  with  it,  notes  and  bills  of  exchange  arising  out  of 
commercial  transactions  as  hereinbefore  defined,  having 
more  than  28  days,  but  not  exceeding  4  months,  to  run, 
but  in  such  cases  the  paper  must  be  guaranteed  by  the 
local  association  of  which  the  bank  asking  for  the  redis- 
count is  a  member. 

40.  Whenever,  in  the  opinion  of  the  governor  of  the 
National    Reserve    Association,    the   public    interests    so 
require,  such  opinion  to  be  concurred  in  by  the  executive 
committee  of  the  National  Reserve  Association  and  to 
have  the  definite  approval  of  the  Secretary  of  the  Treasury, 
the  National  Reserve  Association  may  discount  the  direct 
obligation  of  a  depositing  bank,  indorsed  by  its  local  asso- 
ciation, provided  that  the  indorsement  of  the  local  asso- 
ciation shall  be  fully  secured  by  the  pledge  and  deposit 


National    Monetary     Commission 

with,  it  of  satisfactory  securities,  which  shall  be  held  by 
the  local  association  for  account  of  the  National  Reserve 
Association;  but  in  no  such  case  shall  the  amount  loaned 
by  the  National  Reserve  Association  exceed  three-fourths 
of  the  actual  value  of  the  securities  so  pledged. 

41.  The  rates  of  discount  which  the  National  Reserve 
Association  shall  have  authority  to  fix  from  time  to  time 
shall   be   published   when   fixed,    and   shall   be   uniform 
throughout  the  United  States. 

42.  The  National  Reserve  Association  may,  whenever 
its  own  condition  and  the  general  financial  conditions 
warrant  such  investment,  purchase  to  a  limited  amount 
from  a  subscribing  bank  acceptances  of  banks  or  houses 
of  unquestioned  financial  responsibility.    Such  acceptances 
must  have  arisen  out  of  commercial  transactions,  must 
have  not  exceeding  90  days  to  run,  and  must  be  of  a 
character  generally  known  in  the  market  as  prime  bills. 
Such  acceptances  shall  bear  the  indorsement  of  the  sub- 
scribing bank  selling  the  same,  which  indorsement  must 
be  other  than  that  of  the  acceptor. 

43.  The  National  Reserve  Association  may  invest  in 
United  States  bonds  and  in  short-term  obligations — that 
is,  obligations  having  not  more  than  one  year  to  run — of 
the  United  States  or  its  dependencies,  or  of  any  State,  or 
of  foreign  governments. 

44.  The  National  Reserve  Association  shall  have  power 
at  home  and  abroad  to  deal  in  gold  coin  or  bullion,  to 
grant  loans  thereon,  and  to  contract  for  loans  of  gold  coin 
or  bullion,  and  to  give  therefor,  when  necessary,  acceptable 
security,  including  the  hypothecation  of  any  of  its  hold- 
ings of  United  States  bonds. 

45.  The  National  Reserve  Association  shall  have  power 
to  purchase  from  its  subscribers  and  to  sell,  with  or  with- 
out its  indorsement,  checks  or  bills  of  exchange  payable 
in  England,  France,  or  Germany,  and  in  such  other  foreign 
countries  as  the  board  of  the  National  Reserve  Associa- 


16 


Suggested    Plan   for    Monetary    Legislation 

tion  may  decide.  These  bills  of  exchange  must  have 
arisen  out  of  commercial  transactions,  must  have  not 
exceeding  90  days  to  run,  and  must  bear  the  signatures 
of  two  or  more  responsible  parties,  of  which  the  last  one 
shall  be  that  of  a  subscribing  bank. 

46.  The  National  Reserve  Association  shall  have  power 
to  open  and  maintain  banking  accounts  in  foreign  coun- 
tries and  to  establish  agencies  in  foreign  countries  for  the 
purpose  of  purchasing  and  selling  and  collecting  foreign 
bills  of  exchange,  and  it  shall  have  authority  to  buy  and 
sell,  with  or  without  its  indorsement,  through  such  corre- 
spondents or  agencies,  checks  or  prime  foreign  bills  of, 
exchange  which  have  arisen  out  of  commercial  transac- 
tions, which  have  not  exceeding    90   days   to  run,  and 
which  bear  the  signatures  of  two  or  more  responsible 
parties. 

DOMESTIC  EXCHANGES. 

47.  It  shall  be  the  duty  of  the  National  Reserve  Asso- 
ciation or  any  of  its  branches,  upon  request,  to  transfer 
any  part  of  the  deposit  balance  of  any  bank  having  an 
account  with  it  to  the  credit  of  any  other  bank  having 
an  account  with  the  National  Reserve  Association.     If  a 
deposit  balance  is   transferred  from  the  books   of    one 
branch  to  the  books  of  another  branch,  it  may  be  done, 
under  regulations  to  be  prescribed  by  the  National  Reserve 
Association,  by  mail  or  telegraph  at  rates  to  be  fixed  at 
the  time  by  the  executive  committee  of  the  branch  at 
which  the  transaction  originates.     (See  also  sec.  72.) 

FUNCTIONS  OF  NATIONAL  BANKS. 

48.  In  addition  to  the  rights  now  conferred  by  law, 
national  banks  shall  be  authorized  to  accept  commercial 
paper  drawn   upon  them,   having  not   more  than  four 
month,:  to  run,  properly  secured,  and  arising  out  of  com- 
mercial transactions.     The  amount  of  such  acceptances 
outstanding  shall  not  exceed  one-half  the  capital  and 

17 


National    Monetary     Commission 

surplus  of  the  accepting  bank,  and  shall  be  subject  to  the 
restrictions  of  section  5200  of  the  Revised  Statutes. 

49.  The  organization  of  banks  to  conduct  business  in 
foreign  countries  and  in  the  dependencies  of  the  United 
States  shall  be  authorized.     The  stock  of  such  banks  may 
be  held  by  national  banks,  but  the  aggregate  of  such 
stock  held  by  any  one  bank  shall  not  exceed  20  per  cent 
of  the  capital  of  that  bank. 

The  bank  so  organized  may  have  an  office  in  the  United 
States,  but  shall  not  receive  deposits  in  the  United  States 
nor  compete  with  national  banks  for  domestic  business 
•not  necessarily  related  to  the  business  being  done  in  for- 
eign countries  or  in  the  dependencies  of  the  United  States. 

50.  National  banks  shall  be  given  the  right,  under  proper 
restrictions  and  regulations  to  be  defined  in  the  Act,  to 
establish    separate    savings    departments,    and    to    lend, 
under  proper  restrictions,  not  more  than  40  per  cent  of 
their  savings  deposits  upon  productive  real  estate,  such 
loans  not  to  exceed  50  per  cent  of  the  actual  value  of  the 
property. 

RESERVES. 

(A)  RESERVES  OF  SUBSCRIBING  BANKS. 

51.  All  subscribing  banks  must  conform  to  the  follow- 
ing requirements  as  to  reserves  to  be  held  against  deposits 
of  various  classes,  but  the  deposit  balance  of  any  subscrib- 
ing bank  in  the  National  Reserve  Association  and  any  notes 
of  the  National  Reserve  Association  which  it  holds  may 
be  counted  as  a  part  of  its  required  reserve. 

52.  (i)  Demand  deposits. — There  shall  be  no  change  in 
the  percentages  of  reserve  required  by  law  to  be  held 
against  demand  deposits   by  national  banks  in  different 
localities,  and  hereafter  the  same  percentages  of  reserve 
against  demand  deposits  shall  be  required  of  all  subscrib- 
ing banks  in  the  same  localities. 


18 


Suggested    Plan   for    Monetary    Legislation 

53.  (2)  Time  deposits. — All  time  deposits  and  moneys 
held  in  trust  payable  or  maturing  within  30  days  shall  be 
subject  to  the  same  reserve  requirements  as  are  demand 
deposits  in  the  same  locality, 

All  time  deposits  and  moneys  held  in  trust  payable 
or  maturing  more  than  30  days  from  date  shall  be  sub- 
ject to  the  same  reserve  requirements  as  demand  deposits 
for  the  30  days  preceding  their  maturity,  but  no  reserves 
shall  be  required  therefor  except  for  this  period.  Such 
time  deposits  and  moneys  held  in  trust  must  be  repre- 
sented by  certificates  or  instruments  in  writing  and  be 
payable  only  at  a  stated  time  not  less  than  30  days 
from  date  of  deposit,  and  must  not  be  allowed  to  be  with- 
drawn before  the  time  specified  without  30  days'  notice. 

54.  (3)  Savings  deposits. — Savings  deposits   to   be  de- 
fined in  the  Act,  shall  be  subject  to  notice  of  30  days  or 
more  and  shall  be  covered  by  a  reserve  amounting  to  40 
per  cent  of  that  required  of  demand  deposits  in  the  same 
locality. 

(B)  RESERVES  OF  NATIONAL  RESERVE  ASSOCIATION. 

55.  All  demand  liabilities,  including  deposits  and  cir- 
culating notes,  of  the  National  Reserve  Association  shall 
be  covered  to  the  extent  of  50  per  cent  by  a  reserve  of  gold 
(including  foreign  gold  coin  and  gold  bullion)  or  of  other 
money  of  the  United  States  which  the  national  banks  are 
now  authorized  to  hold  as  a  part  of  their  legal  reserve ; 
provided,  however,  that  whenever  and   so  long  as  such 
reserve  shall  fall   and  remain    below   50  per   cent   the 
National  Reserve  Association  shall  pay  a  special  tax  upon 
the  deficiency  of  reserve  at  a  rate  increasing  in  proportion 
to  such  deficiency  as  follows:  For  each  2%  per  cent  or 
fraction  thereof  that  the  reserve  falls  below  50  per  cent 
the  percentage  of  taxation  shall  increase  at  the  rate  of 
iJ/2  per  cent  per  annum. 


National    Monetary     Commission 

56.  In  computing  the  demand  liabilities  of  the  Associa- 
tion a  sum  equal  to  one-half  of  the  amount  of  the  United 
States  bonds  held  by  the  Association  which  have  been 
purchased  from  the  national  banks,  and  which  had  pre- 
viously been  deposited  by  those  banks  to  secure  their 
circulating  notes,  shall  be  deducted. 

REPORTS. 

57.  The   National   Reserve   Association   shall  make  a 
report,  showing  the  principal  items  of  its  balance  sheet, 
to  the  Comptroller  of  the  Currency  once  a  week.     These 
reports  shall  be  made  public.     In  addition,  full  reports 
shall  be  made  to  the  Comptroller  of  the  Currency  coinci- 
dent with  the  five  reports  called  for  each  year  from  the 
national  banks. 

58.  All  reports  of  national-bank  examiners  in  regard  to 
the  condition  of  banks  shall  hereafter  be  made  in  dupli- 
cate, and  one  copy  shall  be  filed  with  the  National  Reserve 
Association  for  the  confidential  use  of  its  executive  officers 
and  branch  managers. 

59.  All  subscribing  banks  shall,  under  regulations  to  be 
prescribed,  make  a  report  monthly,  or  oftener  if  required, 
to  the  National  Reserve  Association  showing  the  principal 
items  of  their  balance  sheets. 

STATE  BANKS  AND  TRUST  COMPANIES. 

60.  A  bank  or  a  trust  company  which  is  incorporated 
under  the  laws  of  any  State  may  subscribe  to  the  capital 
stock  of  the  National  Reserve  Association  in  the  same 
manner  and  under  the  same  conditions  as  prescribed  for 
national  banks,  and  such  subscribing  bank  shall  become 
a  member  of  a  local  association  and  have  the  same  rights 
and  privileges  therein  as   if  it  were   a   national   bank; 
provided — 

6 1 .  (i)  That  (a)  if  a  bank,  it  shall  have  a  paid-in  capital 
of  not  less  than  that  required  for  a  national  bank  in  the 

20 


Suggested     Plan   for    Monetary    Legislation 

same  location;  and  that  (6)  if  a  trust  company,  it  shall 
have  an  unimpaired  surplus  of  not  less  than  20  per  cent 
of  its  capital,  and  if  located  in  a  city  of  25,000  inhabitants 
or  less,  shall  have  a  paid-in  capital  of  not  less  than  $100,000, 
and  in  a  larger  city  a  proportionately  greater  capital  up 
to  $500,000  in  a  city  of  500,000  inhabitants  or  more. 

62.  (2)  That  it  shall  have  and  agree  to  maintain  against 
its  demand  deposits  a  reserve  of  like  character  and  propor- 
tion to  that  required  by  law  of  a  national  bank  in  the  same 
location;  provided,  however,  that  deposits  which  it  may 
have  with  any  subscribing  national  bank,  State  bank,  or 
trust  company  in  a  city  designated  in  the  national  bank- 
ing laws  as  a  reserve  city  or  a  central  reserve  city  shall 
count  as  reserve  in  like  manner  and  to  the  same  extent  as 
similar  deposits  of  a  national  bank  with  national  banks  in 
such  cities. 

63.  (3)  That    it    shall   have    and    agree   to    maintain 
against  all  other  classes  of  deposits  the  percentages  of 
reserve  required  by  this  Act. 

64.  (4)  That  it  shall  agree  to  submit  to  such  examina- 
tions and  to  make  such  reports  as  are  required  by  law  and 
to  comply  with  the  requirements  and  conditions  imposed 
by  this  Act. 

NOTE  ISSUES. 

65.  There  shall  be  no  further  issue  of  circulating  notes 
beyond  the  amount  now  outstanding  by  any  national  bank. 
National    banks,  may,    if    they    choose,    maintain    their 
present  note  issue,  but  whenever  a  bank  retires  the  whole 
or  any  part  of  its  existing  issue  it  shall  permanently 
surrender  its  right  to  reissue  the  notes  so  retired. 

66.  The    National    Reserve    Association    must,    for    a 
period  of  one  year,  offer  to  purchase  at  a  price  not  less 
than  par  and  accrued  interest  the  2  per  cent  bonds  held 
by  subscribing  national  banks  and  deposited  to  secure 
their  circulating  notes.     The  National  Reserve  Association 


21 


National    Monetary     Commission 

shall  take  over  these  bonds  and  assume  responsibility  for 
the  redemption  (upon  presentation)  of  outstanding  notes 
secured  thereby.  The  National  Reserve  Association 
shall  issue,  on  the  terms  herein  provided,  its  own  notes 
as  fast  as  the  outstanding  notes  secured  by  such  bonds 
so  held  shall  be  presented  for  redemption,  and  may  issue 
other  notes  from  time  to  time  to  meet  business  require- 
ments, it  being  the  policy  of  the  United  States  to  retire 
as  rapidly  as  possible,  consistent  with  the  public  interests, 
bond-secured  circulation  and  to  substitute  therefor  notes 
of  the  National  Reserve  Association  of  a  character  and 
secured  and  redeemed  in  the  manner  provided  for  in 
this  Act. 

67.  All  provisions  of  law  requiring  national  banks  to 
hold  or  to  transfer  and  deliver  to  the  Treasurer  of  the 
United   States   United   States   bonds   other   than   those 
required   to    secure    outstanding    circulating    notes    and 
Government  deposits  shall  be  repealed. 

68.  All  note  issues  of  the  National  Reserve  Association 
must  be  covered  to  the  extent  of  at  least  one-third  by 
gold  or  other  lawful  money,  and  the  remaining  portion 
by  bankable  commercial  paper  as  herein  defined  or  obliga- 
tions of  the  United  States,  but  no  notes  shall  be  issued 
whenever  the  lawful  money  so  held  shall  fall  below  one- 
third  of  the  notes  outstanding. 

69.  Any  notes  of  the  Reserve  Association  in  circulation 
at  any  time  in   excess  of  $900,000,000 1  which  are  not 
covered  by  an  equal  amount  of  lawful  money  held  by  the 
association  shall  pay  a  special  tax  at  the  rate  of  i  %  per 
cent  per  annum,  and  any  notes  in  excess  of  $1,200,000,000 
not  so  covered  shall  pay  a  special  tax  at  the  rate  of  5  per 
cent  per  annum. 

70.  The  notes  are  to  constitute  a  first  lien  upon  all  the 
assets  of  the  National  Reserve  Association,  and  shall  be 

1  The  $900,000,000  and  $1,200,000,000  are  to  be  understood  as  including  any  national-bank 
notes  which  may  be  outstanding  at  the  time. 


22 


Suggested,   Plan   for   Monetary   Legislation 

redeemable  in  lawful  money  on  presentation  at  the  head 
office  of  the  National  Reserve  Association  or  any  of  its 
branches. 

71.  The  notes  of  the  National  Reserve  Association  shall 
be  received  at  par  in  payment  of  all  taxes,  excises,  and 
other  dues  to  the  United  States,  and  for  all  salaries  and 
other  debts  and  demands  owing  by  the  United  States  to 
individuals,  corporations,  or  associations,  except  obliga- 
tions of  the  Government  which  are  by  their  terms  specifi- 
cally payable  in  gold,  and  for  all  debts  due  from  or  by  one 
bank  to  another,  and  for  all  obligations  due  to  a  bank. 

72.  The  National  Reserve  Association  and  its  branches 
shall  at  once,  upon  application  and  without  charge  for 
transportation,  forward  its  circulating  notes  to  any  de- 
positing  bank  against  its  credit  balance. 

UNITED  STATES  BONDS. 

73.  Upon  the  application  of  the  National  Reserve  Asso- 
ciation the  Secretary  of  the  Treasury  shall  exchange  the 
2  per  cent  bonds  bearing  the  circulation  privilege  purchased 
from  the  banks  for  3  per  cent  bonds  without  the  circula- 
tion privilege,  payable  after  fifty  years  from  the  date  of 
issue. 

74.  The  National  Reserve  Association  shall  pay  to  the 
Government  a  special  franchise  tax  of  iX  Per  cent  annu- 
ally during  the  period  of  its  charter  upon  an  amount 
equal  to  the  par  value  of  such  bonds  transferred  to  it  by 
the  subscribing  banks. 

75.  The  Reserve  Association  shall  agree  to  hold  the  3 
per  cent  bonds  so  issued  during  the  period  of  its  corpo- 
rate existence,  provided  that  after  five  years  the  Secretary 
of  the  Treasury  may  at  his  option  permit  the  Reserve 
Association  to  sell  not  more  than  fifty  millions  of  such 
bonds  annually;  and  provided  further  that  the  United 
States  reserves  the  right  at  any  time  to  pay  any  of  such 


National    Monetary     Commissio 


n 


bonds  before  maturity,  or  to  purchase  any  of  them  at 
par  for  the  trustees  of  the  postal  savings,  or  otherwise. 

[The  effect  of  this  exchange  and  agreement  will  be  to 
enable  the  United  States  to  provide  permanently  for  a 
large  part  of  the  public  debt  at  a  net  interest  charge  of 
1^2  per  cent.] 


